Financial statement compilations

A company’s financial statement is constructed to give an indication of a company’s trading results – both its activity and performance. It illustrates the source of profitability, how these profits and cash flows were spent, and what the current values of assets and liabilities are. Companies are required to submit these annually to shareholders and regulatory stakeholders to report on financial performance, demonstrate compliance with income tax and CIPC requirements, as well as prove that they have satisfied financing covenants, where applicable.

Investors and governing bodies rely on the data provided in your company’s reporting to understand the status of your business’ finances. This transparency increases your company’s credibility and reputation. Therefore, it is crucial that this information is compiled accurately and on time. To ensure that your company stays compliant and that your reported data is correct and up to date, you can rely on the professional team at MMS Group.

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    Financial statements comprise

    • Statement of financial position

    The statement of financial position, also termed a balance sheet provides a snapshot of a company’s financial health at a specific point in time. Its three main components are assets, liabilities, and shareholders’ equity. Assets are all resources owned by the company, such as cash, inventory, and property, while liabilities represent financial obligations to other entities, such as loans or accounts payable. Shareholders’ equity comprises the residual interest in the assets of the company after deducting liabilities. By analysing this document, stakeholders can assess a company’s liquidity, financial flexibility, and capital structure.

    • Statement of profit or loss

    Formerly known as an income statement, the statement of profit or loss offers a detailed view of a company’s financial performance over a defined period. It records all revenues earned and expenses incurred during this period. It starts with gross revenue or sales, subtracts costs and expenses, and provides a net income, which indicates whether the company made a profit or suffered a loss. It is crucial for understanding the profitability and growth potential of a business.

    • Statement of Cash flows

    The statement of cash flows traces the movement of cash within a business. It categorises cash flows into three activities: operating (cash generated from daily business operations), investing (cash used for investments in capital assets, and cash received from sale of these assets), and financing (cash received from or paid to investors and creditors). This report is essential for understanding a company’s liquidity and solvency position, as well as its ability to generate cash to fund operations, liquidate debt, and return money to shareholders.

    • Statements of changes in equity

    This statement shows changes in the equity ownership of a company. This includes new equity investments, dividend payments, share repurchases, and changes in retained earnings due to net income or loss. It assists investors in understanding how a company is financing its operations and growth and how effectively management is using shareholders’ capital.

    These four documents are all related and together they form your business’ financial statements. When seeking investment, it is generally the first thing that investors will turn to as it gives a clear indication of your business’ financial history, performance and future growth potential, which is why it is so important that it is compiled professionally – and contains all the relevant information.

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    Is your company required to electronically submit financial statements?

    On 1 July 2018, the Companies and Intellectual Property Commission (CIPC) announced that companies must now submit their Audited Financial Statements (AFS) in a new format known as iXRBL. This new format was introduced to make is easier for companies to submit these electronically. The objectives of the iXBRL programme are:

    • To minimise the administrative burden on companies when having to submit financial information for regulatory compliance
    • To reduce duplication and inconsistencies in submitted business information
    • To achieve compliance and to provide accurate business information to investors with improved transparency

    iXBRL stands for extensible Business Reporting Language and allows the CIPC to read all submitted data more effectively. According to Regulation 30 of the Companies Act, the following business are required to submit Audited Financial Statements in iXBRL format:

    • If your company’s Memorandum of Incorporation (MOI) prescribes Audited Financials – an AFS is in the new XBRL format will be required
    • For Private or Personal Liability Companies
    • If the business holds assets in a fiduciary capacity for unrelated persons, and assets exceed R5 million over the Financial Year
    • If a Public Interest Score is 100 or more and Financial Statements are compiled internally
    • If the business is not managed by owners and Public Interest Score is below 100 and AFS are compiled internally – only Independent Reviewed Financials may be required (which means that the submission in new XBRL format is not mandatory)
    • If your business’ Public Interest Score is over 349 and your AFS are compiled by an independent party
    • Your business is not managed by owners and the Public Interest Score is between 100 and 349 and Financials are compiled by an independent party – Only Independent Reviewed Financials may be required and submission in new XBRL format will not be mandatory.
    If you are unsure whether your company’s financial statement need to be submitted in iXBRL format, or you have any other queries or concerns, please contact our team to discuss your requirements.